Buy the Dip on These 2 Apple Suppliers

Both AVGO and SWKS are trading above familiar support at their 320-day trendlines

by Karee Venema

Published on Mar 29, 2018 at 10:19 AM
Updated on Mar 29, 2018 at 12:50 PM

It's been a tough month for tech stocks, with the Nasdaq Composite (IXIC) on track for its biggest monthly loss since January 2016. Yesterday, Apple suppliers Broadcom Ltd (NASDAQ:AVGO) and Skyworks Solutions Inc (NASDAQ:SWKS) each gave back around 3% -- sinking in step with the tech titan, after analysts expressed concern over iPhone sales. However, the tech names have been two of the best stocks to own on the S&P 500 Index (SPX) in the second quarter, suggesting it could be time to buy the dip.

Broadcom Call Options are Attractively Priced

Looking back over the past 10 years, AVGO is just one of six stocks to boast a 100% positive second-quarter return, averaging a gain of 18.78% over the three-month period. Based on its current perch at $239.28, another move of this magnitude would put Broadcom near $284 for the first time since last November, when it topped out at a record high of $285.68.

Since then, the shares have pulled back to successfully test their rising 320-day moving average in both February, and during Wednesday's sell-off. And while AVGO stock is down 8% year-to-date, it's an attractive time to bet on a bounce with call options. The security's 30-day implied volatility skew of 12.3% ranks in the elevated 96th annual percentile, meaning calls are pricing in low volatility expectations at the moment, relative to puts.

Skyworks Solutions Shorts Could Continue to Jump Ship

SWKS, meanwhile, has a 90% win rate in April over the last decade, averaging a monthly return of 23.53%. The shares were last seen trading at $100.14, so another second-quarter pop of this extent would have Skyworks Solutions at $123.70 in the next 12 weeks -- well above its Nov. 6 record high of $117.65.

After hitting this notable milestone, SWKS stock quickly retreated to its 320-day moving average in early December, which has served as a springboard in recent months. The tech shares closed below here yesterday, but are back above this rising trendline today, thanks to a 1.4% gain in early trading. Year-to-date, the equity has added 4.3%.

A continued round of short covering could help keep the wind at the equity's back, too. Though short interest fell 4.7% in the two most recent reporting periods, there are still 8.19 million SWKS shares sold short -- more than four days' worth of pent-up buying demand, at the stock's average daily pace of trading.


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